Investors in Tokyo were cheered by news that Mizuho Holdings, Japan's largest bank in terms of assets, would increase its capital by 1 trillion yen (US$8.47 billion) to dispose of more bad loans on its balance sheet. Many investors viewed the announcement as a sign that other other Japanese banks may follow suit, traders said.

Japan, the world's second-largest economy, has been stuck in a slowdown for more than a decade. Despite annual write-offs, bad loans have continued to pile up as corporate bankruptcies have soared and Tokyo stocks have plunged to 19-year lows.

In currency trading, the U.S. dollar was quoted at 119.02 yen, up 0.88 yen from late Monday in Tokyo and above its level of 118.12 yen Monday in London.

In Hong Kong, the key Hang Seng Index edged up 16.45 points, or 0.17 percent, finishing at 9,568.47. On Monday, the index had lost 62.57 points, or 0.65 percent.